The rise of crypto-backed loans
There’s never a dull moment on the blockchain. Here’s what you need to know this week:
BTC fell under $110K after the Fed’s interest rate decision. Plus, several new crypto ETFs began trading.
Crypto-backed loans are gaining traction on Wall Street and beyond. How they work, and how they’re shaping crypto and traditional markets.
Strategy just made its biggest BTC buy in a month. And more key stats from around the cryptoverse.
MARKET BYTES
Crypto markets swing on complex economic backdrop
For the last three weeks, volatility has been crypto markets’ major narrative — with prices swinging widely against a fast-shifting economic backdrop. Bitcoin, which had climbed as high as $115,000 on Tuesday, dipped to around $110,000 on Wednesday after the Federal Reserve announced its second 0.25% interest-rate cut for the year. Ethereum also fell — dropping below $4,000 — as markets digested the news.
What’s been impacting markets? Some of the factors include an easing of trade tensions between the U.S. and China, the Fed’s rate-cut plans, and the surprise launch of new altcoin ETFs.
Here’s the news you need to know…
The Federal Reserve cut interest rates again
For the second meeting in a row, the Fed cut interest rates a quarter of a percent on Wednesday, with Fed Chair Jerome Powell pointing to both “growth in economic activity” and a “somewhat softer labor market” in his comments following the announcement.
Bitcoin and stock markets began to dip during Powell’s remarks, after the Fed chief noted that another widely anticipated 2025 cut is “not a foregone conclusion.”
“In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December,” Powell said.
Fed says… “Overall it’s a good picture,” Powell concluded. “But in terms of our policy, we have upside risks to inflation, downside risks to employment, and this is a very difficult thing for a central bank.”
What other economic factors were in play this week?
Markets spiked over the weekend after the U.S. and China agreed on a framework for a new trade deal. (When trade negotiations between the two nations rapidly broke down earlier this month, crypto markets experienced a historic 24-hour liquidation crash that helped kickstart the recent period of volatility.)
Meanwhile, as of Wednesday, the U.S. government shutdown showed no signs of concluding. This is significant because some traders have pivoted out of U.S. dollars and into other asset classes — including crypto — in what has come to be known as the “debasement trade.”
Big picture… “I believe macro factors are a greater contributor to Bitcoin's rise than seasonality or 'Uptober, '” Paul Howard from Wincent told The Defiant.
New ETFs for Solana, Litecoin, and Hedera began trading
In a surprise move, given the current U.S. government shutdown, the Securities and Exchange Commission (SEC) gave the greenlight to several altcoin ETFs to begin trading this week.
On Tuesday, new spot ETFs for Solana, Hedera, and Litecoin launched on the NYSE and Nasdaq exchanges. The ETF issuers were able to take advantage of “a quirk” in shutdown guidance, according to Bloomberg, “that allows some filings to go effective automatically after 20 days.”
“The early listings could give issuers a lasting advantage in a crowded field, where first-to-market status can define long-term success,” noted Bloomberg Intelligence analysts James Seyffart and Eric Balchunas.
Bitwise’s new Solana ETF (which trades under the ticker BSOL) offers staking, which means the crypto the fund buys can be put to work and earn additional rewards for ETF holders.
SOL train… Bitwise’s Solana ETF got off to a strong start on Tuesday, with around $10 million in early volume. The fund could reach $3 billion in inflows over 18 months “if momentum matches BTC and ETH ETF,” according to CoinDesk.
LOAN ZONE
Crypto-backed loans are going mainstream
As crypto becomes increasingly interwoven with the global financial system, stablecoins have attracted much of the attention lately, especially after the GENIUS Act created a regulatory framework for them this summer.
But another crypto-meets-TradFi innovation could be just as consequential. Crypto-backed loans — which use BTC or other digital assets as collateral — are rapidly reshaping credit markets globally.
Multiple platforms have issued more than $1 billion in crypto-backed loans so far this year and JPMorgan, Coinbase, and Visa are all making investments that could help the technology become a key element of global finance’s infrastructure.
Here’s everything you need to know.
What are crypto-backed loans?
Crypto-backed loans are exactly what they sound like: Loans that are secured by crypto (often BTC) as collateral. Like many other loans, they have terms that establish collateral requirements and interest rates.
But unlike most traditional loans, crypto-backed loans don’t require credit scores or often any paperwork — accessibility is solely based on the value of the loan-seeker’s crypto.
Crypto-backed loans can also be made more quickly and with more flexible terms than traditional loans. Bitcoin-backed loans have become a more than $10 billion market, and could reach nearly $60 billion by 2031, some analysts predict.
What are some advantages and risks of crypto-backed loans?
Crypto-backed loans allow investors to access the liquidity of their crypto holdings without having to sell any tokens.
Before these loans existed, making a major purchase — like putting a down payment on a house or buying a car — meant selling your holdings. Now, a long-term bitcoin investor can take out a loan against their BTC, receive stablecoins (or other tokens), and use the capital as they need. Meanwhile, the original crypto maintains exposure to the market, without incurring a taxable event.
Interest rates for crypto-backed loans can often be lower than rates offered by traditional lenders because credit scores aren’t taken into account. Users also often receive approval and dispersal of the funds instantly.
There are risks, too, since crypto markets can see bouts of volatility. If the asset a trader is using as collateral sees a significant price decline, they could be asked to add more collateral or be forced to liquidate, depending on the mechanics of the loan platform or protocol.
Who are some major players?
Ledn, a Toronto-based bitcoin-lending platform, recently passed $1 billion in loan originations for the year, with nearly $400 million in loans coming in Q3 alone.
Galaxy Digital, a publicly traded company that offers digital asset-backed loans, had more than $1.1 billion in loans on its books at the end of Q2 of this year.
Coinbase, which launched its crypto-backed loan product in January, also surpassed $1 billion in total loan originations at the end of September, and has around 15,000 active wallets with loans open on the platform.
And even JPMorgan, the largest bank in the U.S., is reportedly planning to allow institutional clients to use bitcoin and ETH as collateral for loans by the end of this year.
For the bank, whose CEO Jamie Dimon once famously dismissed bitcoin as a “pet rock,” the move is a major shift, and builds on a decision it made earlier this year to allow crypto ETF holdings to be used as collateral for loans.
Samuel Patt, co-founder of bitcoin smart-contract platform OP_NET, suggested that the move highlights the “inevitability” of crypto-backed financial products and underscores how institutions will increasingly need to incorporate crypto-native risk management tools into their operations.
“The more financial institutions integrate Bitcoin, the more they’ll have to learn to play by its rules, not the other way around,” said Patt.
How do they work?
Most platforms that offer access to BTC-backed loans require the loans to be “overcollateralized,” meaning your bitcoin holdings need to be worth more than the loan.
On Coinbase, for example, users need 133% of their loan size as collateral, meaning that with $10,000 in collateral, one could take out a loan of about $7,500. Currently, Coinbase users can borrow up to $1 million against their bitcoin, but soon the limit will go up to $5 million.
If bitcoin sees a significant price decline, though, you could be asked to add more collateral or risk having your collateral liquidated.
Some platforms, like Ledn, are centralized — meaning that loans and collateral are managed by a centralized financial firm.
On Coinbase, loans are powered by the decentralized platform Morpho, which is built on Base (the blockchain incubated by Coinbase). Coinbase provides an interface, but all of the capital management happens via decentralized protocols on the back end.
Crypto holders also have the option to use an onchain protocol like Morpho, Aave, or Compound directly with their self-custody wallet.
The bottom line…
Visa, which has invested heavily in crypto infrastructure, recently put out a report envisioning a future where it could provide the infrastructure for financial institutions to participate in the onchain loan ecosystem.
The report cited Credit Coop, a platform that grants business loans based on onchain revenue, and Huma, a cross-border payments and credit platform, as examples of onchain lending beyond crypto-specific use cases.
“Onchain lending reimagines financial services by using smart contracts to automate and facilitate intermediation instead of traditional institutions,” the report said. “When combined with stablecoins, these products enable new ways to lend and borrow with automated execution, near-instantaneous settlement, and borderless capital flows — essentially creating a global credit market that never closes.”
NUMBERS TO KNOW
$9 trillion
Total volume of stablecoin transactions recorded over the last year — an 87% annual increase — according to a new report from venture capital firm a16z. Noting that “stablecoins are now a global macroeconomic force,” a16z also reported that stablecoin issuers have become significant holders of U.S. Treasuries with nearly $150 billion in reserve backing.
$6.3 billion
The combined volume handled by prediction markets Polymarket and Kalshi in October (as of Oct. 28), up from $4.3 billion in September. In related news, Bloomberg reports that Polymarket will begin serving users in the U.S. again by “the end of November.”
$43 million
Amount that Strategy (formerly MicroStrategy) spent to acquire 390 BTC last week, the firm’s biggest bitcoin purchase in almost a month. The world’s largest corporate holder of BTC has now amassed 640,808 BTC, worth roughly $74 billion.
TOKEN TRIVIA
When is the next Bitcoin halving?
A
2025
B
2026
C
2027
D
2028
Find the answer below.
Trivia Answer
D
2028
